This is where the debate between Robert P. Murphy and Jeff Madrick may continue. Registered members are free to join the discussion.
Was the New Deal a Bad Deal?
(8 posts) (7 voices)-
Posted 2 years ago #
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Since Mr Madrick believes that a recession left to itself is doomed to fall into a tailspin, he has yet to reply to Mr Murphy regarding how can the huge economic boom after WWII could occur after the massive cut in government spending when the war ended.
Also, how does Mr Madrick keynesian analysis can explain the deep recession of 1921 and subsequently quick recovery, granted that no 'keynesian' stimulus was used.
It seems that Mr Madrick point is very weak regarding the historical data of the Great Depression, and outright falsified by looking at other events such at the post WWII expenditure cuts and the 1921 recession (along with all previous recessions up to 1929 in the US, that is).
Posted 2 years ago # -
regarding Friedman, Austrians find him lacking in his understanding of the Great Depression:
"Contrary to popular belief, the Federal Reserve acted with similar vigour to that currently demonstrated by Alan Greenspan, to arrest the decline in the economy in the
early 1930s, but to no avail. “If the Federal Reserve had an inflationist attitude during
the boom, it was just as ready to cure the depression by inflating further. It stepped in
immediately to expand credit and bolster shaky financial positions. In an act
unprecedented in its history, the Federal Reserve moved in during the week of the crashthe
final week of October-and in that brief period added almost $300 million to the
reserves of the nations’ banks.” Rothbard, Murray, America’s Great Depression, P.191.
Not only did the Central Bank inject massive amounts of dollars in the banking system,
but it also dramatically lowered interest rates in an effort to re-start the economy. The
rediscount rate was lowered from 6% to 4.5% in the space of three weeks into the
bottom of the stock market crash, which ended in mid-November 1929. By the end of
1930, the rate was lowered to just 2%. By mid-1931 the rate was down to only 1.5%. At
the same time, as the depression deepened the Federal Reserve frantically tried to inject
money into the ailing banking system, but to no avail as desperate savers rushed to
convert their deposits into cash and gold to be held outside the bank. During 1931, “The
Federal Reserve tried its best to continue its favorite nostrum of inflation-pumping $268
million of new controlled reserves into the banking system.” Ibid, P.231."Posted 2 years ago # -
New deal a success. So 10 years of agonizing recovery was a success.
It's obvious that Madrick is in over his head with Mr Woods. A good portion of his arguments are semantic based attempting to label tags on Tom Woods with negative connotations like, "Austrians", and "those people who believe" blah blah blah...
It would be nice if he stuck to the facts and to the debate at hand, and even better if he verified his perceived facts before he posted them.
Posted 2 years ago # -
I want to thank the two participants in the debate, as this is a tremendous period of time whose lessons are vital but, unfortunately, often locked away behind ideology and assumption. It's good to see people discuss this.
I would like to comment regarding the war spending, and it's ability to "get us out" of the Depression. One of the main tenets of Austrians is that the economy is so complex that to point to a singular "cause" and a later "effect" and to be able to correlate the two is highly improbable, if not outright impossible. I think this is most definitely the case with the war.
The most glaring error in this line of thinking, I believe, is that if war-time spending actually stimulated the economy, then the economy of Britian, France, Russia, Italy, and Germany would have all experienced great rises in their wealth after the war. Unfortunately, at least for Germany, this wasn't the case. This shows that it's not war time spending that's the "stimulus" for an economy, but rather WINNING a war. If you think about it, America was the only large-capacity country with a sophisticated industrial base that did not have a single bomb dropped on it.
Whereas every other country's productive capacity was effectively crippled, the US's had grown. When the war ended, all that spending would have been for naught if all other countries had enjoyed a similar experience. I think this disparity in recovery between the "winners" and "losers" (and I'm basing this off of 1945-1950 Germany only, though I assume Russia et. al. had a similar experience) is enough evidence to show that one cannot attribute a recovery simply to government war-time spending, but rather the externalities associated.
Saying WWII brought us out of the Great Depression is to commit the most simplistic economic fallacy there is - that of the Broken Window. It makes absolutely no logical sense whatsoever that destroying already-produced goods and killing able-bodied men leads to economic prosperity, no whatsoever. This fallacy was adequately dealt with 150 years ago and it boggles my mind that people still invoke it. If broken window worked, then all we would need to do to lead to economic utopia would be to funnel money into our military and go and bomb random bits of (hopefully) unoccupied land. I take that back, we'd actually have to go and bomb factories and stores of goods and food.
Posted 2 years ago # -
Mr. Nowak is correct. World depressions have been worse, and longer, since we adopted Keynesian approaches. We even, in the 1970's, managed to do what was previously thought impossible -- create a recession with high inflation -- all due to Keyneseian policies.
What Mr. Madrick doesn't understand -- as is obvious from his belief in a "tailspin" if government doesn't do something -- is that the economy is a bottom-up, self-organizing system that undergoes creative destruction. Such systems undergo periods of punctuated equilibrium, meaning that error accumulates in the system, causing it to enter a period of chaos, then self-reorganization. Mr. Madrick would have us suppose that a mass extinction will necessarily lead to the end of all life on earth, unless some external force comes in to save everything. That of course didn't happen throughout the history of the ecosystem. The economy is a human ecosystem. It abides by the same laws of organization. UNless Mr. Madrick is a creationist or an intelligent design advocate, I would suppose he would find the need to intervene to prevent a tailspin of exinctions during a mass extinction as utterly absurd as he should find his own theory about the economy.
Posted 2 years ago # -
So is that it?
Posted 2 years ago # -
This was an interesting discussion. I am unfortunately coming to it rather late, but I am disappointed that both writers focused narrowly on monetary policy when the forces behind the depression were much broader in scope. Nowhere do the authors mention the Smoot-Hawley tariff, though that was one of the principle causes of the worsening situation. Also, nowhere is mentioned FDR's creation of numerous government agencies like the AAA that effectively retarded the market adjustment of the agricultural industry in America, and gave but a little comfort to farmers (2-5 percent of the workforce) at the expense of everyone else, effectively raising the price of food for everyone downstream of farmers (which is everyone). These, and other, significant government interventions in the free market were at least as responsible for the Depression as was fiscal policy.
Posted 1 year ago #
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